NCDRC | If an employee of a stockbroker conducted fraudulent arbitrage operations for personal benefit causing loss to stockbroker company, would that be covered under ‘Fidelity’ clause of an insurance claim? Read on

National Consumer Disputes Redressal Commission

National Consumer Disputes Redressal Commission (NCDRC): The Division Bench of Justice R.K. Agrawal (President) and Dr S.M. Kantikar (Member) while partly allowing the complaint expressed that the surveyors of the insurance company adopted a conservative approach and kept demanding for information without any further clarification.

Complainant filed the instant complaint against the Opposite Party under Section 21(a)(i) of the Consumer Protection Act, 1986.

Complainant Co. was engaged in the business of arbitrage between NSE and BSE. As per the requirements of NSE and BSE, the complainant company took the insurance cover from the OP for cover amount of Rs 1 crore. The said policy was being renewed every year regularly, which covered “fidelity” under Section 1A of the terms and conditions of the policy. Nilesh Patel was incharge and looking after the arbitrage operations and other back-office work related to the updating of trade datas, MIS reports and deciding about volume of arbitrage. He was drawing salary and entitled to annual bonus like other employees. Alongwith that, he was not allowed to trade on his own or otherwise, any time.

It was noted that Mr Nilesh Patel committed huge fraud by transferring the losses into the accounts of companies clients. Complainant submitted that the said acts were fraudulent, unauthorized, without consent or permission of authority of the Complainant Co. and/ or his constituents.

Complainant company filed an insurance claim with the OP Insurance Co. OP rejected the claim of the complainant co. on the ground of speculative trading entered into by its employee which was outside the scope of the policy.

BSE observed that the loss incurred to the complainant was due to the fraud and infidelity of its employee and it was not speculative trading. OP still refused to settle the insurance claim.

On being aggrieved with the above position, the consumer complaint was filed.

Analysis and Decision

Bench observed that the two surveyors appointed by the insurance company failed to act as per IRDA guidelines and unnecessarily delayed the settlement of the claim. Complainant company though had submitted the entire details as sought, yet the surveyors made repeated demands for additional information.

In view of the above, the Commission found that the surveyors did not follow the IRDA guidelines which was a deficiency of service of the part of the OP.

The Complainant suffered loss due to dishonest actions of its employee Nilesh Patel who confessed his misdeeds and due to guilt, he committed suicide.

Commission opined that the complainant’s claim would be squarely covered under Section 1A i.e. ‘Fidelity’.


Loss resulting solely and directly from dishonest or fraudulent acts by Employees of the Insured committed with the manifest intent to cause the insured to sustain such loss or to obtain a financial gain for themselves wherever committed and whether committed alone or in collusion with others, including loss of property through any such acts by Employees.”

Evidence on record clearly establishes that the Complainant Co. suffered a loss due to fraudulent acts of Mr Nilesh Patel, the employee of the Company.

Bench on perusal of the record expressed that it was the apprehension of the Surveyors who surveyed arbitrage transactions only theoretically and failed to grasp the sophisticated techniques adopted by the complainant co. for arbitrage transactions.

Commission found that it was the baseless presumption of the Surveyors that Mr Nilesh Patel possibly attempted to make profits on speculative transactions, since his remuneration could be performance-based.

Based on the entirety the deficiency in service on the part of Insurance Co. was evident. OP was directed to pay an insurance claim of Rs 1 crore to the complainant co. alongwith interest @9% p.a. [R.R. Chokhani Stock Brokers (P) Ltd. v. New India Assurance Co. Ltd., 2021 SCC OnLine NCDRC 20, decided on 04-02-2021]

Advocates for the parties:

For the Complainant: Harish Malhotra, Senior Advocate with Ramakant Chokhani, AR

For OPs: P.K. Seth, Advocate

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